I’ve seen the cost of cars broken down to the cost per kilometer of driving, and I’ve seen it broken down to cost per year. However, neither approach seems to measure costs in the way I want. So, I set out to figure out how to model the cost of my car. I want a better idea of what it costs to have a car and how much it costs to drive it.
I began by recording all my car costs in the following categories:
– Purchase price
– Maintenance and repairs
I recorded the month of each cost so that I could use historical Consumer Price Index figures to adjust for inflation. For example, to adjust a cost of $100 in January 2010 when the CPI was 115.1 to March of this year (CPI 122.9), calculate
($100/115.1)*122.9 = $106.78.
Then I added up the adjusted costs in each category to get the totals in today’s dollars. The big question is what to do with this data at this point. One possibility is to work out the cost per kilometer. But this seems misleading because it overstates the marginal cost of each new km driven. Working out the cost per year is also misleading because the cost per year depends on how much you drive.
Fixed and Variable Costs
I decided to try to break the costs into fixed and variable costs. I think of the fixed costs as the cost of having a car available. Even if I never drive it, having a car costs money. Then the variable costs are proportional to the number of km driven.
The question now is how to divide up the 5 categories of costs into fixed and variable costs. The initial purchase price is partly fixed and partly variable because the more you drive a car the sooner you have to buy a new one. A guess is that a car rarely driven would last about twice as long as a car driven as far as I drive in a year. So, I split the initial purchase price 50/50 between fixed and variable.
Fuel is 100% variable, and maintenance and repairs are mostly variable, say 80%. Licensing is 100% fixed. Insurance is mostly fixed, but costs do rise the more you drive. I treated insurance as 70% fixed.
Next I divided up the 5 categories of costs into fixed and variable costs based on these percentages. I then took the fixed costs and divided them by the number of years I’ve owned my car (13). One exception is that I divided 50% of the initial purchase price by 17 as a (possibly optimistic) guess of the number of years I would have it in total.
I divided the variable costs by the number of km I’ve driven (317,739). One exception is that I divided 50% of the initial purchase price by a (possibly optimistic) guess of the total number of km I’d drive the car (400,000).
(See here for the car cost spreadsheet I used.)
The final costs for my car are
Fixed: $4550 per year, plus
Variable: 34 cents per km.
The way I interpret these results are that just having this car available to me costs $4550 per year, and actually driving it costs me another 34 cents per km.
How to use this information
The $4550 per year seems quite high. I guess owning a luxury car with 300 horsepower costs money. I’ll probably make a different choice when this car finally grinds to a halt.
Even the 34 cents per km is expensive when you think about it. I’ve played ball at a diamond 20 km away from my home for many years. The round trip has cost me $13.60 per game. Before I went through this exercise, this was an invisible cost. If the parking lot at the ball diamond had instituted a $2 charge, I would have complained bitterly, not realizing that I was already paying $13.60 per game.
Flying or driving to a vacation in Florida is a different decision when I think about the 34 cents per km. The return trip to Florida is about 4500 km, or $1530. So much for driving to save the flight costs for my wife and I of about $500 each.
Armed with this new information about the cost of my car will make me think differently about the cost of trips. Paying $200 for a train ticket for a 1000 km trip seems expensive until I realize that the cost to drive is $340. I’m very likely to choose my next car to have lower life-cycle costs.